On a salary of $45,000 per year, you can afford a house priced at around $120,000 with a monthly payment of $1,050 for a conventional home loan — that is, if you have no debt and can make a down payment. This number assumes a 6% interest rate.
These numbers change—sometimes dramatically—depending on a few factors, including:
• How much debt you have
• What your down payment is
• How much you’re paying for taxes, insurance, and homeowners association dues, if anything
• What interest rate is available to you
• What type of loan you get
With the median home price in the U.S. topping $400,000, you might be wondering how everyone else affords a home in your neighborhood. We’ll cover every aspect of home affordability for a $45,000 salary to help you work toward getting the home you’ve always wanted.
💡 Quick Tip: A VA loan can make home buying simple for qualified borrowers. Because the VA guarantees a portion of the loan, you could skip a down payment. Plus, you could qualify for lower interest rates, enjoy lower closing costs, and even bypass mortgage insurance.†
What Kind of House Can I Afford With $45K a Year?
The kind of home you can afford depends on more than your $45,000 salary. It’s also based on your debt-to-income (DTI) ratio, interest rate, down payment, type of home loan, and lender.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Understanding Debt-to-income Ratio
Your DTI ratio is a key factor in determining how much home you can afford. The more debt you have, the lower your housing payment needs to be. This directly translates into a lower priced home. So, what exactly is a DTI ratio? It is the proportion of monthly debt you need to repay in relation to your gross monthly income.
For example, if your total debt amounts are $2,000 each month and your income is $6,000 per month, your debt-to-income ratio would be 33%. This falls under the 36% threshold mortgage lenders look for with conventional home mortgage loans.
However, keep in mind that the $2,000 has to include your new mortgage payment. If your debts cost $500 each month, your monthly mortgage payment cannot be more than $1,500.
How to Factor in Your Down Payment
Your down payment also plays a significant factor in home affordability. Generally, the higher down payment you have, the more home you can afford. If you purchase a home far below what you can afford, your monthly payment will be much lower.
If you make a down payment of 20% or more, you’ll also be able to save on mortgage insurance premiums, which are typically required on most loan types for homes purchased with a down payment lower than 20%.
If you play around with a mortgage calculator, you can see how a larger down payment can affect your monthly payment and home price.
Factors That Affect Home Affordability
Beyond your debt, income, and down payment, there are a number of other factors that go into home affordability. These include:
• Interest rates The interest rate you have on your home dramatically impacts how much home you can afford. When interest rates are high, your monthly payment is higher. When interest rates are down, you pay less interest on your loan, which means you can afford a more costly home. Remember that if rates drop significantly a mortgage refinance is always an option.
• Credit history and score The interest rate that you’ll qualify for is dependent on your credit score and history. A better credit score will qualify you for the best interest rates, which means your monthly payment will be lower, which can increase your buying power.
• Taxes and insurance Taxes and insurance factor into your home’s monthly payment. They will be calculated into the home’s PITI (payment, interest, taxes, insurance) and included as part of your monthly debts.
• Loan type The type of loan you get affects home affordability. This is due to the different interest rates and down payment options available to specific loan types. VA loans from the U.S. Department of Veterans Affairs, for example, come with a lower interest rate and don’t require a down payment.
• Lender Lenders may have discretion to increase the allowable debt-to-income ratio. Some can go as high as 50%.
• Location Some areas are more affordable than others. Thinking about moving? Take a look at a list of the best affordable places to live in the U.S.
Recommended: The Cost of Living By State
How to Afford More House With Down Payment Assistance
One of the best tools for increasing home affordability is with down payment assistance programs. These programs provide funds for the down payment (and sometimes closing costs) to help make homes more affordable for buyers.
Some programs offer down payment assistance in the form of a grant that does not need to be repaid, while others finance a second mortgage which may need to be paid when the home is sold (but sometimes is forgiven earlier). In Colorado, for example, there’s the CHFA Colorado Down Payment Assistance Grant. Virginia offers the Virginia HOMEownership Down Payment and Closing Cost Assistance program (DPA)
Search your state, county, and city to see what programs are offered for your area. You may also want to read tips to qualify for a mortgage.
How to Calculate How Much House You Can Afford
Calculating how much house you can afford is smart, especially if you’re a first-time homebuyer and making early plans to buy a home. There are some guidelines lenders use to qualify borrowers for a mortgage, including:
The 28/36 Rule: This guideline states that no more than 28% of your income should go to your monthly housing payment and your debt-to-income ratio should be no more than 36% of your income
When calculating DTI (also known as the back-end ratio), your lender will add all of your debts (including the new mortgage payment) to make sure all debts will fall under 36% of your income amount. If your monthly income is $3,750 ($45,000/12 = $3,750), your debts (including the mortgage payment) should be no more than $1,350 ($3,750*.36).
Lenders will also calculate the front-end ratio, which should be no more than 28% or your income. With a monthly income of $3,750, this number works out to $1,050.
The 35/45 Rule: Some lenders may go by the 35/45 guideline, which allows for a housing payment up to 35% of income and 45% of total DTI ratio. This expanded allowance is up to the lender, but may allow for qualification of higher purchase amount and payment.
With a monthly income of $3,750, the housing allowance (35% of your income) increases to $1,312.50 and the total monthly debts (45% of your income) increases to $1,687.50. An easier way to calculate how much home you can afford is with a home affordability calculator.
Home Affordability Examples
Let’s take a look at two examples of homebuyers with $45,000 incomes in differing scenarios. All assume the same taxes ($2,500), insurance ($1,000), and APR (6%) for a 30-year loan term (just for illustrative purposes).
The $45,000 annual salary is divided by 12 to get a $3,750 monthly income and the maximum DTI ratio works out to be $1,350 ($3,750 * .36).
Example #1: $45,000 income but lots of debt
Monthly credit card debt: $300
Monthly car payment: $350
Student loan payment: $300
Total debt = $950 total debt payments
Down payment = $20,000
Maximum DTI ratio = $3,750 * .36 = $1,350
Maximum mortgage payment = $400 ($1,350 – $950)
Home budget = $38,069
Even with a $20,000 down payment, it could be hard to buy a home in this scenario.
Example #2: $45,000 income with little debt
Monthly credit card debt: $50
Monthly car payment: $0
Student loan payment: $0
Total debt = $50
Down payment: $20,000
Maximum DTI ratio = $3,750 * .36 = $1,350
Maximum mortgage payment = $1,300 ($1,350 – $50)
Home budget = $171,925
💡 Quick Tip: Don’t have a lot of cash on hand for a down payment? The minimum down payment for an FHA mortgage loan is as low as 3.5%.1
How Your Monthly Payment Affects Your Price Range
The monthly payment you qualify for affects the total price you can pay for a home. If monthly debts are too high, for example, you’ll likely qualify for a lower-priced home. The monthly payment is also affected by interest rates. Because interest is amortized over 30 years (on a 30-year mortgage), the amount of interest you pay is significant, even if you manage to score a lower rate.
Recommended: Home Loan Help Center
Types of Home Loans Available to $45K Households
When you’re looking for home loans, you’ll see these different types of mortgage loans available:
• FHA loans Loans backed by the Federal Housing Administration are geared toward buyers with low down payments, low credit scores, and other situations that require a lender to be more flexible.
• USDA loans United States Department of Agriculture loans are for those who live in rural areas. They offer zero down payment options and low interest rates.
• Conventional loans Conventional loans are loans that are not part of a government program, but they are backed by government-sponsored enterprises, Fannie Mae and Freddie Mac. They’re usually less expensive than FHA loans, but your application does need to meet certain guidelines to qualify for conventional financing.
• VA loans VA loans offer zero down payment options, the lowest interest rates on the market, and flexible credit requirements. If you qualify for a VA loan, you’ll likely want to go with this option.
The Takeaway
There’s no way around it — affording a home in today’s housing market is tough. If your $45,000 salary is all you have access to, you’ll need to save, improve your credit, research down payment assistance programs, enlist a partner, move to a less expensive area, or find other creative ways to afford a home. But don’t give up. It can be done. Your hard work will pay off with a mortgage for a home of your own soon.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
Is $45K a good salary for a single person?
A $45,000 salary for a single person is a good start. How good it feels to earn $45,000 will depend on the cost of living where you live and the friends and neighbors you’re surrounded by.
What is a comfortable income for a single person?
A comfortable income for a single person depends on your lifestyle and habits. The median income for a single person is $56,929, according to data from the U.S. Census. A single person in Cobb County, Georgia, would be able to cover their expenses for about $40,000 per year while the same person in New York City would need $53,342.
What is a liveable wage in 2023?
The Massachusetts Institute of Technology’s Living Wage Calculator takes into account your area, working household members, and number of children. For example, a single living in San Francisco has a living wage of $26.63. A household with three children where only one spouse works in St. George, Utah has a living wage of $44.99 per hour.
What salary is considered rich for a single person?
To be in the top 5% of earners, you would need a salary north of $234,342.
Photo credit: iStock/500
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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